UBS said that low bond yields and interest rates had herded
investors into the stock market to make some return on their
cash. But this has led to a distortion in the way risk is priced
into equities.

"Equities in general are trading at very high multiples, which
makes sense given the level of bond yields, however, this doesn't
appear to be pricing the level of macro risk that we're
witnessing in the market," UBS' analysts said.

"In a world of heightened macro factor, systemic and economic
policy risk, we should expect higher levels of equity market
volatility," the note to clients, published Monday, continued.

Economic-policy uncertainty has soared this year, with political
crises in the UK and Europe and a bumpy rebalancing of the
Chinese economy away from manufacturing and toward services.

Here's the chart:

UBS

The note mirrors the argument made by one of the most successful
hedge fund managers of all time, Ray Dalio, who founded the $82
billion (£57.1 billion) Bridgewater Pure Alpha fund. He said
recently that the 75-year debt boom was coming to an end and that
it was going to get ugly.

"We are seven years into the expansion phase of the
business/short-term debt cycle — which typically lasts about
eight to 10 years — and near the end of the expansion
phase of a long-term debt cycle, which typically lasts about 50
to 75 years."